Q2FY19 highlights
Key positives: Strong marketing margins
Key negatives: Weak refining metrics, debt ramp up
Impact on financials: Revise FY19/20E EPS up by 25/3% to factor inventory and sharply higher marketing margins, offsetting lower refining assumptions. TP revised to 180/sh
Valuations & View
IOCL remains the most resilient among the 3 OMCs in an uncertain marketing environment due to lowest profit contribution from the segment among peers. Additionally, strength in other product margins is a positive. Despite these positives and the optimism from the recent decline in Brent crude prices however, we remain cautious. The Refining environment has turned unusually weak in recent weeks, with retail fuel margins yet to recover to pre Oct price cut levels, even though the scenario might change with crude @US$73/bbl levels. Valuations of 8x FY20E EPS (Standalone) and 5.3x EV/E adequately capture the risk-reward. Reiterate Neutral.
Indian Oil is engaged in the sale of imported crude oil; and exploration of petrochemicals, and oil and gas. Co.'s products include liquefied petroleum gas, natural gas, petrol/gasoline, diesel/gas oil, aviation turbine fuel/jet fuel, lubricants and greases, marine fuels and lubricants, kerosene, bulk/industrial fuels, bitumen, petrochemicals, and crude oil. Co. also provides other products, which comprise benzene, carbon black feed stock, food grade hexane, jute batching oil, micro crystalline wax, mineral turpentine oil, paraffin wax, propylene, raw petroleum coke, sulphur, and toluene.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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